Is Your Denial Based on Late Notice of Loss—Who Has To Prove Prejudice?

Late notice of loss lead to denials in Florida at a very high rate. Insurers claim that they are prejudiced and that a presumption of prejudice arises from late notice. A federal trial court has questioned older legal authority about whether a presumption exists and whether the insurer bears the burden to prove prejudice based on policy language.1

The first rule is to read the policy language. In this case, the policy indicates that the late notice has to be “prejudicial” to the insurer:

Plaintiff primarily argues that Defendant enjoys no presumption of prejudice in this case because the language of Defendant’s contract with the Insureds places the burden of showing prejudice on Defendant. Resp. at 2–3. Specifically, Plaintiff points to the provision stating that Defendant has ‘no duty to provide coverage under this policy if the [Insureds’] failure to comply’ with their duties ‘is prejudicial to [Defendant]’ and asserts that the presumption of prejudice does not arise in a case where the parties’ contract contains this language. Id. at 2. A wide body of district precedent would suggest that this argument misses the mark; indeed, this district has held on numerous occasions that the presumption of prejudice arises under policy provisions identical to those in this case. See, e.g., Battat v. QBE Specialty Ins. Co., No. 21-60326, 2022 WL 1642296, at *1 (S.D. Fla. Jan. 31, 2022) (finding a presumption of prejudice)…

The court then analyzed recent Florida cases on the issue:

The Florida Fourth District Court of Appeal recently analyzed whether the presumption of prejudice arises under the policy language at issue here. Godfrey v. People’s Trust Ins. Co., No. 4D21-901, 2022 WL 1100490 (Fla. 4th DCA Apr. 13, 2022). There, as here, the policy stated that ‘the insurer had ‘no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to [the insurer].’…Among the ‘following duties’ was that the insured file a sworn proof of loss. Id. The insurer denied the insured’s claim for failure to comply with that duty. Id. The court found that, owing to the proviso ‘if the failure to comply with the following duties is prejudicial to us,’ the ‘policy expressly require[d] a showing of prejudice.’ Id. Consequently, the Court held that ‘[a]n issue of fact remain[ed] as to whether [the insured’s] failure to file a sworn proof of loss was ‘prejudicial’ to [the insurer] within the meaning of the policy.’ Id. In a similar case involving the same language, the court found that ‘failure to comply with policy conditions requires prejudice to insurer in order for that failure to constitute a material breach and permit an insurer to deny coverage for a claim. Whether insurer is prejudiced is a question of fact.’ Arguello v. People’s Trust Ins. Co., 315 So. 3d 35, 41–42 (Fla. 4th DCA 2021).

The federal judge found that recent Florida case law changed the burden of proof and presumption regarding prejudice:

Upon careful consideration, the Court must reject the body of precedent within this district that a presumption of prejudice may arise when a policy provision requires that an insured’s failure to comply with an enumerated duty be prejudicial to the insurer. Because there is no presumption of prejudice, a genuine issue of material fact remains as to whether the Insureds’ failure to timely notify Defendant was prejudicial, and the Motion must be denied. To hold otherwise would create a regime under which an insurer may obtain a different result in federal court than that required by the new line of cases in Florida state court.

For policyholders, it is best to report a loss. It is not an excuse to say that the loss does not exceed the deductible. By doing so, this prejudice legal issue does not even arise. However, if a late notice issue arises, it is important to read the policy language to see what the standard of proof will be.

Thought For The Day

We can’t help everyone, but everyone can help someone.
—Ronald Reagan
___________________________________
1 SFR Services v. The Hartford Ins. Co. of the Midwest, No. 21-cv-81330 (S.D. Fla. June 29, 2022).